An Annual Operating Plan (AOP) is a financial planning tool used by businesses to anticipate their revenue and expenses for the upcoming year. It is a comprehensive document that includes goals, key performance indicators (KPIs), operating budgets, and strategic plans to help a company achieve clear objectives. The purpose of the AOP is to outline projected sales revenue, costs of goods and services, gross margin estimates, operating expenses, and net income for the year. It also includes a cash flow analysis that predicts the timing of cash inflows and outflows. The AOP serves as a roadmap for businesses to efficiently allocate financial and physical resources and achieve their specific short- and long-term objectives. An effective AOP plays a vital role in communicating the companys goals and objectives to stakeholders such as investors, employees, and customers. It fosters alignment within the organization, facilitates decision-making, and guides resource allocation. To create an AOP, businesses should go through financial statements, budgets, reports, and any other documents from previous years to lay a foundational understanding of how the company works and use the results to lend knowledge in creating an AOP. They should also set realistic objectives, consider possible setbacks, and revisit the plan regularly.